South Africa

South Africa

Eskom warned against contract renegotiations

Debt-ravaged state utility Eskom is considering renegotiating contracts with companies successful in South Africa's first two renewable energy tenders, according to reports.

Public enterprises minister Pravin Gordhan reportedly made the comments in an interview with Reuters
Public enterprises minister Pravin Gordhan reportedly made the comments in an interview with Reuters

Eskom wants to lower the prices it pays for electricity from older renewable energy projects, public enterprises minister Pravin Gordhan told newswire Reuters.

But the CEO of the South African Wind Energy Association (SAWEA) warned such a move would be a breach of contract and risk damaging investors’ confidence.

The utility expects annual losses of around ZAR 20 billion (US$ 1.4 billion) this year and its chief financial officer has warned it "cannot solve (its) financial challenges alone".

It is to be restructured to help it survive its ongoing financial crisis.

Speaking with Reuters, Gordhan said: "This is not about scrapping a contract. This is about exploring possibilities that are created by the rapid fall in costs in the renewable sector — whether that’s solar or wind."

However, SAWEA CEO Brenda Martin said lowering prices paid to project operators risked undermining confidence, as Eskom sought to attract investors to South Africa and to help it reduce its debt.

"Besides raising the spectre of breach of contract, renegotiation would require extensive and careful process to ensure fairness to affected investors while also providing sufficient assurance to prospective investors," Martin added.

Despite the concern at potential renegotiation, Martin said that she was not aware of any formal requests to redraft contracts.

State of the Union

In his State of the Union address in February, president Cyril Ramaphosa announced the restructuring of Eskom into three divisions: Generation, Transmission and Distribution.

He also highlighted the need for an "affordable tariff increase" and for a "new business model" for Eskom reflecting, among other changes, "market penetration of clean (energy) technologies".

The government would "support Eskom’s balance sheet" and help to "stabilise (its) finances", Ramaphosa added.

SAWEA welcomed the changes, "in particular, the establishment of an entity to manage system operation, power planning, procurement and buying functions, which is vital to fair market access".

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